IRS TAX TIP 2004-49
Are you footing the costs of higher education for yourself or your family?
The IRS says that education tax credits can help offset those costs. The
Hope Credit and the Lifetime Learning Credit are education credits you can
subtract in full from your federal income tax, not just deduct from your
taxable income.
The Hope Credit applies only for the first two years of post-secondary
education, such as college or vocational school, and it can be worth up to
$1,500 per eligible student, per year. It does not apply to graduate and
professional-level programs. You're allowed 100% of the first $1,000 of
qualified tuition and related fees paid during the tax year, plus 50% of
the next $1,000. Each student must be enrolled at least half-time.
The Lifetime Learning Credit applies to undergraduate, graduate and
professional degree courses, including instruction to acquire or improve
job skills. If you qualify, your credit equals 20% of the first $10,000 of
post-secondary tuition and fees you pay during the year for all eligible
students, for a maximum credit of $2,000 per tax return.
You cannot claim both the Hope and Lifetime Learning Credits for the same
student in the same year.
To qualify for either credit, you must pay post-secondary tuition and fees
for yourself, your spouse or your dependent. The credit may be claimed by
the parent or the student, but not by both. However, if the student was
claimed as a dependent, the student cannot claim the credit.
These credits are phased out for Modified Adjusted Gross Income above
$41,000 ($83,000 for married filing jointly) and eliminated completely for
Modified AGI of $51,000 or more ($103,000 for married filing jointly). If
the taxpayer is married, the credit may be claimed only on a joint return.
The Hope Credit is not allowed for a student convicted of a felony drug
offense.
Use Form 8863 to claim either the Hope or Lifetime Learning Credit.
For more information, see IRS Publication 970, "Tax Benefits for Higher
Education," which can be obtained online at
www.irs.gov
